US economy returned to growth last quarter, expanding 2.6%

https://apnews.com/article/inflation-europe-business-economy-gross-domestic-product-e1a95c0c9e7b046ed88ad2e9e3150dce

by rafaelc • 4 years ago

159 258 4 years ago

alexb_• 4 years ago

Housing investment, though, plunged at a 26% annual pace, hammered by surging mortgage rates as the Federal Reserve aggressively raises borrowing costs to combat chronic inflation. It was the sixth straight quarterly drop in residential investment.

Thank christ. Please bring on a housing crash ASAP.

rogerkirkness• 4 years ago

Housing investment would be 'housing starts' as in new houses being built. I doubt that prices will be going down if there are more people and the same number of houses. Part of the market for existing houses is sensitive to mortgages. All this means is housing will actually cost more in the future on a total cost of ownership basis. If you're a renter with a ton of cash, this is good, but for literally all other stakeholders in the market is it ultimately not good.

newfocogi• 4 years ago

Could you explain why this is good for the renter with a ton of cash?

jvanderbot3• 4 years ago

We took a hard look at the economy before buying our house. Ultimately, we bought when interest rates were high, but prices had not yet come down.

There's no crystal ball, but it sure looks like our investment will go down in value in the next few years, perhaps precipitously.

I think of it this way: We bought the house we want for the price we can afford, and will happily enjoy it for two decades without price inflation, even though our salaries will likely go up. So, it's a win, even though we bought at what looks like peak market.

kristjansson• 4 years ago

Yup, a house is housing first and an investment second.

yodsanklai2• 4 years ago

I've been waiting for the real estate market to crash for 20 years... On the other, my savings are worth less and less.

gretch• 4 years ago

Glad you’re content. If you’re in the US, As a bonus, just remember that the US gov always does everything it can to keep housing prices stable or up. Of course it’s not an easy problem for them, but you’re in the same boat as millions of other ppl and the govt won’t let you crash out that hard.

roflyear6• 4 years ago

Home prices, not adjusted for inflation, are fairly sticky. You may lose some money due to the loan.

Not every decision we make needs to be pragmatic. Your last comments capture this. Don't worry about it.

jandrese4• 4 years ago

Look at it this way: you are missing out on 25% rent hikes.

https://thehustle.co/why-is-rent-skyrocketing/

D13Fd• 4 years ago

That's a good outlook.

If it's any consolation, we invested in the market in a big way for the first time in October 2021. We just got the "Congratulations on your first year of investing!" e-mail from the service with a link to our account, which happily displays a big red 25% loss on our solidly six-figure investment.

(I do think the stock market losses may be driving a lot of the recession talk. Those losses have happened, for sure)

bergenty3• 4 years ago

We bought our home last month, past the peak but prices will probably drop below what we bought it for. We did buy all cash and are in this place for the long term so I don’t feel too bad besides the fact that we could have probably afforded more house for the amount we paid if we waited six more months.

sleepydog• 4 years ago

If housing prices go down, but mortgage rates go up, are we still screwed?

nobody99992• 4 years ago

Federal Reserve aggressively raises borrowing costs to combat chronic inflation. [emphasis added]

Not sure why you used that word. I don't think it applies in this circumstance. Not trying to be pedantic/snarky, I just wonder why you characterize only 18 months or so of higher than has been seen in quite some time inflation as "chronic."

Chronic (adj.):[0]

   1a : continuing or occurring again and again for a long 
        time
   2a : always present or encountered 
    b : being such habitually

[0] https://www.merriam-webster.com/dictionary/chronic

Edit: I note (after the fact) that the parent poster was quoting TFA and not making that statement themselves. My apologies for attributing that to alexb and not the AP article. That said, I still think it's odd that they'd use the term "chronic."

justin662• 4 years ago

There is (was, really) an argument in the public sphere as to whether the inflation we're experiencing is merely "transitory," and this plays into the larger debate about how it ought to be dealt with by the Fed and the US government. Use of the word "chronic" is merely someone noting their position on the question of whether our inflation is "transitory."

edit: looking at it in context, it's someone noting the Fed's decision on the matter (of course it's not transitory), which also makes sense

teeray• 4 years ago

Please bring on a housing crash ASAP.

IMO, there’s too many people making this bet for it to actually manifest. Not sure exactly how it’ll happen, but I can’t help but think banks are eyeballing those war chests people have saved up for crash. They’d much rather those as rent payments than interest payments.

jandrese4• 4 years ago

Supposedly the car market is about to crash as well. There was supposedly 2008 like shenanigans in the auto lending segment and the crows are coming home to root.

Speculation is that people were buying cars they couldn't afford using the stimulus checks as the downpayment and then immediately asking for a halt on payments due to COVID. With both factors no longer in play people can't afford their cars and are defaulting. This should cause a massive wave of repos and a flood in the used car market.

That said, the market can stay irrational longer than you can stay solvent. Car lot managers will be in denial for some time before they actually lower prices to where they should be.

I suspect there is some chunk of the economic doomsaying that is literally political propaganda. A recession is bad for the party in power and a lot of the economic catastrophe drumbeat started around the time early polls opened up.

yardie• 4 years ago

Stimulus checks were what $2000 total. That's less than 10% on a new car and most competent banks look at your monthly payment and DTI to determine how much to loan.

A recession is bad for the party in power and a lot of the economic catastrophe drumbeat started around the time early polls opened up.

They've moved from economy to gas and the polls are now on crime. Really anything to stir up FUD.

nfriedly• 4 years ago

Speculation is that people were buying cars they couldn't afford using the stimulus checks as the downpayment and then immediately asking for a halt on payments due to COVID.

I wouldn't be surprised if that happened a few times, but I find it hard to believe that it was widespread enough to significantly impact car prices. I certainly haven't heard of anyone doing this.

That said, I'd welcome a reduction in used car prices. Someone ran into our car and totaled it earlier this year. We replaced it with the exact same make model and year, and it cost us several thousand dollars more than buying it the first time, despite it now being several years older.

rhino369• 4 years ago

Please bring on a housing crash ASAP.

The best outcome is probably just nominal value stays relatively steady while real value declines after factoring in inflation.

You don't want people massively underwater on their mortgages.

altarius• 4 years ago

In my opinion, housing is mostly inelastic unless people have to sell due to external circumstances (like being unable to pay mortgage). I don't expect the housing market to decline more than 15-20%, as the more people are "underwater" from their purchase price, the more likely they're to just "wait out the slump". And with low interest rates locked in, many probably don't want to roll their mortgages now. Since we've had such a crazy runup [1] ([2]) in the past few years, a 20% decline still puts many sellers ahead, but I don't think they'd sell at a loss if prices dropped further. SF Case-Schiller is up 25-30% from 2020, and ~50% from 2017, for example.

My personal opinion is that once you've bought in you're locked in and along for the ride. If your house is down 20%, so is most likely the house you consider moving to. Unfortunately housing is often seen as an "investment".

[1] https://wolfstreet.com/wp-content/uploads/2022/10/US-Housing... [2]

twblalock• 4 years ago

It would be hard for housing to crash unless the current supply and demand situation changed dramatically.

An increase in supply so large that it would cause prices to crash would take years to build. In fact, inventory is lower than normal in some areas because people who might otherwise sell are holding out for better times, sometimes by renting out their properties and capturing today's unusually high rent prices instead.

A drastic decrease in demand is not going to happen because of mortgage rates. High mortgage rates have already taken a chunk out of demand yet housing has not crashed. The only way I can see demand dropping so much that prices crash is a major recession with mass unemployment, which knocks a large number of potential buyers out of the market entirely because they lost their incomes.

SantalBlush4• 4 years ago

The EU has a similar committee to the NBER, which identifies EU business cycles. They also do not use the colloquial "2 quarters of decline in GDP" definition, though at least 2 quarters of decline is often seen in those recessions that they do identify. [0]

Most of the recessions identified by the Committee’s procedures consist of two or more quarters of declining real GDP, but declining real GDP is not the only indicator used. As an example, the Committee has identified the period from the first quarter in 1980 to the third quarter in 1982 as a recession, even though real GDP was growing in some quarters during that episode and that real GDP was higher at the end of the recession than at the beginning. As another example, the Committee did not declare a recession for 2001 or 2003, even though the data at the time appeared to show a decline in economic activity (though not for two quarters). Subsequent data revisions have erased these declines.

Those claiming a US media conspiracy to redefine the term "recession" have a political axe to grind, and nothing more. The NBER identifies recessions in the US, they have done it for a long time, and they will continue to do so.

[0] https://eabcn.org/dc/faq

pavlov• 4 years ago

It’s shocking to me how many people in America are hoping for the national economy to do poorly so that their party could win the next election. This isn’t just limited to one tribe.

The same doesn’t exist in Europe AFAICT. I don’t believe anybody is hoping that Putin would shut down the gas pipes for good so that their favorite politician could win an election next year.

modriano• 4 years ago

I don't think that's exactly right. I think everyone wants the economy to do well, but most people's ability to gauge the economy is very limited, so they defer to other information sources to tell them how the economy is doing even if they're personally doing fine [0].

If you look at employment over the past 20 years [1], you'll see that Obama took office when the economy was in freefall and after about 9 months the economy turned around and started growing steadily until someone let COVID run wild in the US, at which point the economy fell off a cliff. But the right wing media isn't going to (and never would) say Obama handed Trump a very strong economy and Trump was the first president to oversee a net loss of jobs in over 80 years. The right wing media also won't mention that Trump was all in on making the money printer go brr so that his reelection didn't also have to overcome an explosion of poverty in addition to explosions in death and unemployment. But the right wing media isn't interested it accurately describing reality; it's goal is to secure power for right wing politicians, and to have a shot of doing that in a democracy, right wing media has to conceal the inconvenient facts that show Democrats are actually better stewards of the economy, produce lower rates of violent crime, and are consistently better at delivering improvements to the net and median quality of life of residents of the US.

[0] https://www.nytimes.com/2022/07/15/business/economy/inflatio...

[1] https://data.bls.gov/timeseries/ces0000000001

moate• 4 years ago

You have your cause and effect backwards. People assume that "the other guy" is constantly doing all the bad stuff in the world and that "their guy" does all the good stuff. They're not hoping the economy tanks to win an election, they're hoping the electorate realizes "the other guy" tanked the economy and now their base will be energized/swing voters will move to their column.

Also, if you don't believe anyone in Europe is rooting for collapses you seem to be ignoring Short positions or how capitalism works. Everywhere in the world, someone benefits from the people in power failing/bad things happening. This isn't an exceptionally American trait.

datadata3• 4 years ago

The issue is that the definition of a recession is vague, subjective, and as a term has become so politically important. If the definition was objective, verifiable, etc, then there wouldn't be room for the idea of political manipulation. I wish that society would not place such high value on terms that are so murky. It encourages discourse where the truth is not important.

treeman794• 4 years ago

It’s been 2 quarters of negative growth for decades. You can find videos of every politician on both sides saying that.

trafficante• 4 years ago

The whole “actually the terms we’ve used throughout your life aren’t correct and we’re going to pretend there’s nothing unusual about this sudden reversal” is wildly damaging to institutional credibility.

I hold a BS in Econ and even I was shocked by how it was presented to the public. I figured there was a very good chance GDP would rebound for at least a quarter - and the political spin would be “Biden saves America from the Putin recession in record time” or something.

None of those talking heads had a single clue that the “two declining quarters” definition was simply a useful shorthand and yet they all immediately hopped on the exact same script.

Edit: in case it wasn’t clear, I 100% agree that we need more accurate definitions. So much needless harm is being done when the response to edge cases falling outside the colloquial understanding of a term is to quietly change dictionary definitions instead of educating the population.

jcranmer• 4 years ago

There is a decently objective definition of recession: two consecutive quarters of declining economic output. Most metrics of economic output tend to have high degrees of (positive or negative) correlation: GDP, (un)employment, etc.

The issue is that what you've seen since the pandemic started has been basically insane macroeconomic statistics that defy historical correlations, so whereas the US GDP declined in Q1 and Q2 of this year, there weren't corresponding declines in other statistics (e.g., unemployment stayed low). If half of the economic indicators are signalling "recession" and the other half are signalling "rip-roaring growth", any definition that pigeon-holes the economy into one or the other is likely a bad definition.

tristor• 4 years ago

I don't need someone "official" to tell me a recession is happening. It's rather self-evident for those who are observant. Thanks, though.

SantalBlush4• 4 years ago

That's great, but I was specifically talking about recent discussions regarding the official definition. If you're not interested in that topic, then my comment wasn't for you.

importantbrian8• 4 years ago

This is the weirdest "recession" I can remember. Business leaders are constantly talking about how challenging the economic environment is and the need for layoffs etc. Meanwhile most of the underlying indicators are actually positive. Growth is strong, employment is strong. Anecdotally we're still having trouble finding good candidates. It's almost like there is a class of business leaders who are just trying to wish a recession into existence, and I can't figure out why other than maybe they think it would allow them to reestablish power in the labor market.

bagels• 4 years ago

The fed said interest rates will keep being raised until unemployment rises.

glial• 4 years ago

Which is so strange and violates two of their three mandates - maximum employment and moderate interest rates.

importantbrian8• 4 years ago

Did the fed actually say this? There were a bunch of investment bankers who did, and it seems like everyone else ran with the narrative. I haven't seen that the fed actually said it. I think all the fed cares about is bringing down inflation, but if the primary factors in inflation are supply related then unemployment doesn't have to go up for inflation to come down.

bergenty3• 4 years ago

This seems like an easily accessible conspiracy theory but I think all the fed wants to do is bring down inflation.

datadata3• 4 years ago

I'm not sure why people continue to take what the fed says as being accurate predictions of the future. For example, they said in 2021 that they expected interest rates would be zero until 2024 [1]. They obviously have a lot of real power, but they must be understood to either be deceitful or incompetent given how wrong prior predictions have been.

[1] https://www.ft.com/content/3d7704d3-a312-4294-95bc-90233f469...

wollsmoth• 4 years ago

A lot are just focused on the next earnings call which makes sense I guess. If they work to deal with this "emergency" and it doesn't happen idk if there's a big price to pay.

atomicnumber3• 4 years ago

I too find that many mysteries become clearer when you look at them through the lens of the constant class warfare that is being waged. All too often in only one direction.

I'll be honest - I didn't use to think the rich/powerful thought like this. I thought it was just the tragedies of capitalism and the invisible hand needing more protection from market failures.

Then I worked for a billionaire's small company for five years right out of college.

Now I recommend "Wage Labor and Capital" to anyone who I think will be able to manage it's low-two-digit number of pages.

bushbaba• 4 years ago

Inflation means GDP can grow, with expenses growing faster.

SantalBlush4• 4 years ago

This 2.6% figure is real GDP, meaning it's adjusted for inflation. [0]

[0] https://www.bea.gov/news/2022/gross-domestic-product-third-q...

golergka• 4 years ago

We just had gone through an unprecedented global pandemic, there's a war in Europe that might become a world or nuclear war, and there's been unprecedented floods and draughts in many key regions of the world. I mean, it's good that they turned out to be wrong, but I won't blame them for expecting a recession in 2022.

cliftonk• 4 years ago

When I hear it from business leaders, there are three logical reasons 1) exposure to the housing market 2) poor performance by the company (its the economy's fault!) or 3) an excuse to trim fat from a high-margin company that's aware of how bloated it is.

rendang4• 4 years ago

Another piece of the puzzle is the big drop in labor productivity lately - https://fred.stlouisfed.org/series/OPHNFB. Could the data you mention be explained by workers previously being in jobs where they were unproductive, being laid off but then quickly reabsorbed by the hot labor market into more efficient lines of work?

importantbrian8• 4 years ago

Isn't that just because of the steep rise in labor costs? It's just another sign of how strong the labor market is right now.

zeroonetwothree2• 4 years ago

It’s a pretty small drop and there is a lot of noise in that metric.

ipaddr2• 4 years ago

That's people going back into the office and lowering production

bergenty3• 4 years ago

This is inspite of the fed raising the rates. I believe the fed may have missed the boat for a bit but they started raising rates just in time. This economy is resilient and honestly it’s a beautiful thing to see.

conductr• 4 years ago

There is a class of business leader that is definitely in a recession where that word just means downward financial performance trajectory.

I’d be willing to bet the distinction is how much labor you employ and what kind (pay bands as proxy). Hospitals for example are in a world of hurt post Covid. Labor is their main cost. Rates are down but remain high. Employee satisfaction is low. Revenues do not keep pace with costs and largely uncontrollable.

hartator2• 4 years ago

When you adjust for money supply inflation (peak at around 24%) instead of price inflation (peak at around 9%), every indicators become very red.

I think money supply inflation reflects more the reality and explain the current bearish sentiment.

JumpCrisscross4• 4 years ago

adjust for money supply inflation (spiked at around 24%) instead of price inflation (spiked at around 9%)

The former is a fake metric. Measuring changes in the monetary base [1] is a thing. But it’s seldom accurately reflected in a single figure.

Also, the 2.6% is real GDP growth. Current-dollar growth was 6.7% annualised [1].

[1] https://en.wikipedia.org/wiki/Monetary_base

[2] https://www.bea.gov/news/2022/gross-domestic-product-third-q...

nostrademons4• 4 years ago

The stock market, interest rates, and advertising spending are leading indicators, while unemployment is a lagging indicator.

Business leaders know the financial structure of their company, and many of them know that they can't survive at 2% rates, let alone 5 or 10% rates. The gloom from business leaders is forward-looking. They're fine for now, while consumer spending holds up and they can run on old debt. But as soon as they need to roll over their debt, everything collapses. They'd need to increase revenues by 2-5x, and they can't.

My prediction is that we drive off a cliff. CEOs know their companies can't survive high rates, so they manage as if a Fed pivot is coming. If the expected Fed pivot happens, they bank windfall profits and get huge stock bonuses. If it doesn't, they go bankrupt, everybody is out of work, and it is not their problem anymore.

importantbrian8• 4 years ago

This seems overly pessimistic. I'm sure a high rate environment isn't ideal for a lot of businesses, but we've had much higher rates in the past and most businesses survived it just fine.

AnotherGoodName• 4 years ago

they manage as if a Fed pivot is coming

We can't argue this both ways. You can't argue that business leaders are acting as if the fed will pivot away from the current course when the parent is pointing out that they are all tightening in preparation for more to come.

echelon• 4 years ago

Easy enough to see which public companies have this debt, when their debt obligations are due, and what their historical expenses, revenue, and cash on hand are.

Could probably script this and build a report. I'm not going to do this (I'm working hard and can't afford to be nerd sniped), but please share if you build this. After buying your own positions, of course. :)

roflyear6• 4 years ago

It's not a boolean answer. Businesses have the capacity to respond without completely going out of business.

bumby2• 4 years ago

many of them know that they can't survive at 2% rates, let alone 5 or 10% rates.

From your perspective, what is the underlying reason they cannot survive without excessively low rates?

Your last statement feels like it's primed to hold the Fed hostage, which is worrisome.

fallingknife• 4 years ago

You are thinking of nominal rates, but you should be looking at the real rate, which is the spread of the interest rate over inflation. They can survive 5-10% rates just fine if inflation is 8%. They don't need to raise revenue 2-5x to make coupon payments, because interest isn't their entire cost structure.

davidgay• 4 years ago

But as soon as they need to roll over their debt, everything collapses. They'd need to increase revenues by 2-5x, and they can't.

That would imply that debt-servicing is their dominant cost. That seems wrong (e.g., a grocery store presumably spends a large fraction of its revenue on purchasing groceries from wholesalers).

onlyrealcuzzo2• 4 years ago

Is there any indication that ad spending LEADS consumer spending?

I can't imagine why anyone would turn down ads while ROAS is blazing.

Marketers / ad people - is this common? If so, why?

mise_en_place• 4 years ago

This is a very spot on analysis. I was wondering why the stock market keeps closing green, when high interest rates discount future values/cash flow. You'd expect it to close red, but as you mention the markets are hoping for a Fed pivot. It is effectively a soft pivot by the Fed.

francisofascii• 4 years ago

If too many companies can't survive and start to go bankrupt, the Fed will pivot. If we enter a major recession, high inflation will most likely be over.

coldpie• 4 years ago

It's almost like there is a class of business leaders who are just trying to wish a recession into existence, and I can't figure out why

You may find a clue in the results on Nov 8th.

spaceman_2020• 4 years ago

The world is wacky right now. Normal patterns of behavior have been disrupted by 2 years of lockdowns. Some people are spending out of spite. Some people are not even leaving the house. There's a certain levity about work - no one seems to be taking it seriously.

Strange times. Really hard to capture in data. Only increases possibilities of a major economic catastrophe because the tea leaves are just too hard to read right now.

colordrops• 4 years ago

There's a certain levity about work

Where do you work? For the two companies I've worked at during this period I would not use the term "levity".

supergeek133• 4 years ago

This is the broadest view of the economy growing. So there may be some business leaders who work in still growing industries who are trying to "wish the recession into existence" as you say..

But on the flipside you have things like housing taking a downturn (not just home prices, but actual housing construction) which negatively impacts all of their suppliers (HVAC equipment, lumber, contracting companies, etc etc).

So there are some of those leaders who have a likely justified negative outlook.

treeman794• 4 years ago

Be real fun when the strategic oil reserve runs out / stop draining it after November Election. Nothing was done to increase domestic supply. And OPEC has decided to tighten the screws on us.

importantbrian8• 4 years ago

This may just be a localized thing, but housing construction here is not slowing down. My in-laws own a construction business and they're the busiest they've ever been. Their biggest challenge is hiring and getting supplies.

tschellenbach• 4 years ago

Companies pay employees to increase the value of the company. The market is reasonably efficient and companies will increase pay to match the value created (somewhat correlated at least. startups often pay more with the hope it balances out in the future, established companies pay less since some of them print cash and they dont have to pay more to get candidates).

Many tech companies are down 80-95%. So if you used to pay employees 100 to generate 100, now you are paying 100 to generate 20 or in some cases 5. This only works if you can massively increase productivity or reduce cost.

There is no evil conspiracy, markets are just down

subsubzero2• 4 years ago

It is weird, they say history does not repeat but it rhymes. What is troubling about this good news about GDP growth is the fed's course of raising interest rates will continue on and interest rates will keep getting higher and higher. This will lead to a housing market that will grind to a halt and expect that whole sector will hemorrhage jobs. In addition growth companies will be hit hard by rates being high as we have seen since early this year. Basically the fed will do anything in its power to stop inflation and I expect the only thing to get it back to the target of 2% is to have interest rates in the low teens. I know that sounds crazy but comparing this to the 70's it took Volker raising rates to 20% to tame the bad inflation of that period[1]. We are not seeing peaks of 11%-13%(like the 70's) but 8%+ is very high and is costing Americans dearly.

[1] https://www.npr.org/2022/09/29/1125462240/inflation-1970s-vo...

ericmay• 4 years ago

This will lead to a housing market that will grind to a halt and expect that whole sector will hemorrhage jobs

Yea and outside of just absolutely ultraviolet kind of hot markets this will mitigate downward pressure on prices now and in the future because home builders (though that's another problem) won't be building homes. Coupled with people who have locked in interest rates, the market seems to me to be poised to grind to a halt and prices to remain quite high.

UncleOxidant2• 4 years ago

Mortgage rates at 7% is pretty much the average mortgage rate going back 70 years or so. We're basically at the average mortgage rate now. The Fed screwed up by keeping rates too low for too long which juiced home prices such that a huge chunk of people who would like to be able to buy a home are priced out of the market.

The problem, though, is that home building needs to continue in order to improve the housing supply problem (caused at least in part by the dearth of home-building during the '08-'12 period) and thus help with affordability. I tend to think that the government needs to step in here and do something to either incentivize home-building and/or at the very least do something to streamline permitting/zoning. Building codes need to be examined to see if there might be innovations that could lead to lower building costs which are currently being precluded. But keeping mortgage rates artificially low isn't the answer, that led to prices getting out of hand.

cwkoss2• 4 years ago

Perhaps the housing market is obese from low interest rates, and will be healthier after a bit of dieting.

Society would be healthier if the housing market wasn't managed to be a retirement fund. Would likely end homelessness.

wwweston• 4 years ago

This will lead to a housing market that will grind to a halt and expect that whole sector will hemorrhage jobs.

Construction should be an industry that people care about and policymakers watch out for. But making housing purchases dependent on cheap credit may have been a poor decision, and it's possible that as a result large swathes of real estate as a sector are based on problematic incentives. The housing market needs several resets, and much as it pains me to say it as someone who'd like my own mortgages to be cheap as much as anyone else, it might need years of high interest rates to start getting things back in line -- on top of aggressive vacancy taxes, property taxes scaling on single-family rental volume + inventory scarcity, and anything else that nudges capital towards construction vs operation on existing inventory.

Basically the fed will do anything in its power to stop inflation

I'm not sure what the limits of the fed's will here are, but what worries me is that monetary policy is not the sole or even primary cause of inflation: big supply shocks and demand shifts in the last 2-3 years are the bigger issue. Monetary policy can only go so far in addressing it.

jfengel2• 4 years ago

The reversals in the housing market will be unpleasant, but they go hand in hand with all of the overpriced housing we've had for the last decade.

The Fed failed to follow its own policy, of taking the punch bowl away when the party gets going. It allowed the economy to heat up for too long, and thus the inevitable reversals. Averaged over a few decades it will be the same 3-4% GDP growth that we would have gotten if they'd taken a stronger hand in taming the business cycle.

Their goal is to contain the booms so that the busts aren't so bad. Having let the boom go on, there is no choice but for a bad bust to happen. It would be nice if they'd learn their own lesson for next time, a decade or so away... but unfortunately, everybody loves low interest rates and a roaring economy.

Eumenes• 4 years ago

Sounds like a conspiracy theory on your end

Mikeb85• 4 years ago

The recession is real (but probably won't materialize until we see the 4th quarter of this year's numbers). Lots of sectors are seeing reduced consumer spending, layoffs and of course interest rates rising reduces capital spending.

zeroonetwothree2• 4 years ago

Overall spending and employment are still increasing. There are always some sectors growing and some shrinking. It doesn’t mean the whole economy is in recession.

itsoktocry• 4 years ago

This is the weirdest "recession" I can remember. Business leaders are constantly talking about how challenging the economic environment is and the need for layoffs etc

I think people's sense of timescale is off. Business leaders are talking about things that we likely won't see for months.

This isn't rocket science; we have insane inflation, rising interest rates, a strong USD and tightening monetary policy around the globe. Where do you see the growth coming from? Have you considered that "things aren't that bad" might benefit one or the other party during the upcoming election?

aschearer3• 4 years ago

Have you considered that "things are terrible" might benefit one or the other party during the upcoming election?

UncleOxidant2• 4 years ago

a class of business leaders who are just trying to wish a recession into existence, and I can't figure out why

There's also a 'class' of political leaders (primarily the party out of power) that is trying to give the impression that we're in a recession in order to help their party in the mid-term elections.

LatteLazy• 4 years ago

It's a recession for NON workers. Normally recessions are managed to make sure they hit workers and everyone else is fine, this one is the other way. Hence the FED rushing to "correct" the problem.

bjornsing• 4 years ago

Stuff gets weird when you have a lot of inflation. It distorts everything.

dragonwriter• 4 years ago

This is the weirdest "recession" I can remember.

Its not a recession, which is why it is weird when looked at as a recession.

OTOH, there is still substantial risk of inflation control measures creating a recession. (And there is a bigger risk of business actions anticipating and avoiding being overextended in case of a recession caused by inflation control measures themselves causing a recession.)

pclmulqdq2• 4 years ago

Everyone forgot the denominator. In terms of GDP/kWh of energy or GDP/calorie of food, we are still seeing sharp decline. Instead, we are measuring in dollars.

When inflation starts to hit salaries and debt needs to be rolled, we will start to see more business contraction. That is what business leaders are planning for.

vikingerik3• 4 years ago

There never was a real recession - it's an artifact of year-over-year numbers that were so skewed from pandemic effects.

Pent-up consumer demand shifted much activity from 2020 into 2021. This is the source of all the apparent weirdness. Every yearly number in 2021 looked great thanks to comparing an artificially high number to an artificially low 2020 baseline. Then every yearly number from 2022 looks terrible, because it's comparing to 2021's number that was artificially high from time-shifted demand.

Remember the "great resignation"? That was an illusion - it was just normal pent-up demand for job switching that didn't happen during the pandemic. The inflation of 2022 is also largely an illusion - it's really just that a few percentage points of what should have been normal inflation in 2020 and first-half 2021 was time-shifted into 2022. (The inflation is real, but the timing is an illusion - it's not really 8% per year, it's a fairly normal 12% over three years.)

If you believe any year-over-year number from 2021 or 2022, you're falling for headline click-bait without considering the underlying irregularities.

christkv• 4 years ago

I really hope you are right but the massive debt taken on by all the western countries has me worried about their ability to actually respond to a hard recession if it hits this winter.

com2kid3• 4 years ago

The inflation of 2022 is also largely an illusion - it's really just that a few percentage points of what should have been normal inflation in 2020 and first-half 2021 was time-shifted into 2022.

Food prices are up 48% at the nations second largest grocery chain.

Rent prices are now through the roof, 20-30% year over year increases are common in major cities.

Things are more expensive, full stop, and it isn't just "an extra year" more expensive.

nightski2• 4 years ago

The data just does not seem to line up with your assessment. Labor force participation rate is down 1% since pre-pandemic. It's not earth shattering, but it is quite a drop.

Also inflation is hardly a few percentage points of catch up. Look at the chart below and tell me you still believe that.

https://www.bls.gov/charts/consumer-price-index/consumer-pri...

Not to mention food/gas is worse which is what hits people in low to mid income ranges the most.

scythe• 4 years ago

a fairly normal 12% over three years

That's roughly double the Fed target rate — annualized 3.8%, which would be the highest any year save 2008, which was itself an anomaly due to the GFC. The last time inflation exceeded 3.5%, save 2008, was in 1991. So 12% in three years is in no sense normal (for the USA).

The inflation is real, and it's serious. It's actually produced a reduction in real wages [1] despite much excitement about workers' bargaining power. Progressives complaining about the Fed (which is finally reacting reasonably) seem to be missing that preventing a wage–price spiral is not the same thing as union-busting.

1: https://www.bls.gov/news.release/realer.nr0.htm

caycep• 4 years ago

The problem is that it is in the political interests of a lot of groups that many people believe it...

metacritic12• 4 years ago

12% inflation over 3 years is not normal. The previous time it was 12% over any 3 years was back in the raging inflation years of the early 1980s.

Finally, it's not even 12% -- if you look at the 3 year chart here, it's 16% over 3 years, even less normal:

https://fred.stlouisfed.org/series/CPIAUCSL

adam_arthur6• 4 years ago

Because a recession is all but obvious at this point.

While it may not be here now, we probably have more foresight into the fact that there will be a recession than ever before.

The Fed will intentionally create one to stop inflation, despite their talk of soft landing. The only hope otherwise is that inflation subsides on its own, which, given labor dynamics, is looking increasingly unlikely.

So the Fed has to choose between spiking unemployment to contain inflation, or letting inflation run wild. Powell doesn’t intend to be remembered as an Arthur Burns, so it seems most likely he will keep pressing until the recession comes.

Eventually stock prices will come down enough, and debt costs rise enough to actually cause the layoffs they need to pivot.

Final note that, due to public sector debt levels, we cannot choose a path of allowing moderately high inflation for a long period of time. The government budget will become insolvent without a mechanism to fund it, either at the short or long end of the yield curve. Or in short, either we need a quick and sharp recession, or the Fed to give up on the inflation fight so they can drop short end rates and let govt debt inflate away.

Otherwise the US govt will default within a few years.

blululu• 4 years ago

I’ve been thinking back to the 2008 recession where we had a jobless recovery for the next ~5 years. Part of me wonders if we will have an unemployment free downturn on the flip side. Personally I prefer the later to the former, but I understand people with more savings are less happy about that possibility.

nicholasjarnold• 4 years ago

This is just an opinion based on personal experience across multiple companies, but I think many of us can probably agree that companies (large, medium and small) seem to hire up a lot of people who provide tenuous value during the high times, like what's been occurring since post-2008 in the US.

Those W2 employees are expensive recurring liabilities to the companies employing them. This expense can be offset in various ways (R&D credits, cheap money, endless VS cash, public statements about "always growing", other stuff I don't know about I'm sure). However, when the cracks in the system begin to show companies need to accomplish at least a couple of things: reduce recurring expenses and maintain an image of success (publicly traded or not!) despite the headwinds.

Now, one way to accomplish those goals might be to join in with your fellow "biz leaders" and make statements about an upcoming recession and hard times, etc. This allows you to blend in with the crowd rather than be "that one company that is maybe failing". Once the blending in step is accomplished it leads into being able to start reducing headcount without freaking out too many people (it's not just Meta, it's everyone!).

...I can't figure out why other than maybe they think it would allow them to reestablish power in the labor market.

Also, yeah, I've toyed with this idea too. After many years of pay band compression recent years have shown (for at least software engineers) that it's possible to individually negotiate up quite a bit. If you are qualified and can communicate that clearly, then you are in for a big raise or three. Until recently, even if you weren't particularly qualified you could still do this. This knowledge has spread pretty widely. Obviously capital doesn't like it when labor can say "Screw it, I'm out. 'Gonna go get a big raise instead of stick around and deal with X". This could indeed be the opportunity that capital was waiting for to readjust those dynamics again.

SkyPuncher• 4 years ago

IMO, business leaders knew they over-hired and that it was a wide spread industry trend.

"The Recession" was a convenient reason for them to trim ineffective or unnecessary staff.

dfxm122• 4 years ago

I can't figure out why other than maybe they think it would allow them to reestablish power in the labor market.

It's exactly this and actions/comments from CEOs and the Fed pretty much confirm it. When Powell said "economic pain" was necessary, he meant that mostly for the working class. Look at all the layoffs going on...

By driving up unemployment, the Fed expected “supply and demand conditions in the labor market to come into better balance over time, easing the upward pressure on wages

https://www.wsws.org/en/articles/2022/09/23/izio-s23.html

AtlasBarfed• 4 years ago

The Elite are drunk on PPP money printing, and don't want to downsize. Meanwhile inflation means all your employees expect a 10-15% raise to keep up with higher costs, and paying your employees is verboten in the religion of American Capitalism.

rufus_foreman• 4 years ago

> Meanwhile most of the underlying indicators are actually positive

That's not what I'm seeing. There's a good summary from earlier this week at https://seekingalpha.com/article/4548245-weekly-indicators-s...

Employment is the only indicator that is still positive, everything else is either neutral or pointing to a recession.

kgc• 4 years ago

Does inflation factor into this number?

SantalBlush4• 4 years ago

Yes, this is real GDP, meaning adjusted for inflation. [0]

[0] https://www.bea.gov/news/2022/gross-domestic-product-third-q...

kyleyeats2• 4 years ago

Yes, and the suspiciously low inflation numbers we're given are just low enough to indicate there's growth.

roflyear6• 4 years ago

Everything is a conspiracy.

SevenNation• 4 years ago

Overall, the outlook for the overall economy has darkened. The Fed has raised interest rates five times this year and is set to do so again next week and in December. Chair Jerome Powell has warned that the Fed’s hikes will bring “pain” in the form of higher unemployment and possibly a recession.

Those hinging important economic decisions on the "Powell Pivot" are going to have to wait longer. There's no way a pivot is happening into a combination of positive economic growth like this, strong jobs market, and sky-high CPI increases.

There are maybe three factors that will cause a pivot:

1. Inflation falls to match the Fed funds rate

2. A rapid housing market decline starts to cause disruption throughout the rest of the economy.

3. The bond market starts choking.

everybodyknows4• 4 years ago

Direct link to the primary source, Department of Commerce:

https://www.bea.gov/news/2022/gross-domestic-product-third-q...

JPKab2• 4 years ago

"The U.S. economy grew at a 2.6% annual rate from July through September,"

Annual rate. That means the AP headline is deceptive, because it actually grew .6 percent.

Capital is getting more expensive. Of course a recession is inevitable.

I really hate the partisan capture of once neutral newsrooms. The headline is deceptively optimistic.

lame-robot-hoax• 4 years ago

So when they report on inflation (which is always portrayed in annual terms, not month over month), are they being overly pessimistic?

nigrioid• 4 years ago

Still optimistic.

eloff2• 4 years ago

This is terrible news. Without a recession to curb inflation, the fed will have to get far more extreme with interest rates to get inflation back down. I thought that rates might top out around the end of the year, but now the fed may have to keep raising aggressively well into next year. Mortgages and the housing market are going to get slammed. This is going to get much worse than I previously expected.

georgeecollins2• 4 years ago

But inflation is already lower in this report. I am not forecasting the future-- I have no idea-- but its not clear that inflation is getting worse.

eloff2• 4 years ago

I missed that, that's a huge ray of hope! It looks like it's already getting below real interest rates. That's excellent!

ferrocarraiges• 4 years ago

That sounds like the opposite of terrible. We are long overdue for some bloodletting in residential real estate markets.

mgamache2• 4 years ago

The Yield curve, Mortgage Rates, Bonds and Asset Prices are all in bad shape. Combined with rapidly falling income (due to 15%+ real inflation) it's a disaster in the making. Homes will likely fall 30-35% in adjusted value in the next 12 months. A lot of people's net worth is in their homes. This will be the largest post WWII drop in home prices. Don't forget the strong dollar is crushing economies around the world, who are our trading partners (and creditors).

adam_arthur6• 4 years ago

The Fed has two choices.

They either need to engineer a quick and sharp recession, or give up the inflation fight and drop short term rates.

With option one the US can fund debt liabilities on the long end. With option two, the short end.

Otherwise the US government will become insolvent within a few years. To me it’s clear they’re choosing option one.

mgamache2• 4 years ago

Right, I just don't know how it's 'quick'. So much of inflation is supply side and not controlled by the Fed. They have to crush it hard and it may last a decade.

onlyrealcuzzo2• 4 years ago

This is the dumbest "recession" because it comes on the dumbest asset pump.

The S&P is still up 13% from pre-pandemic. That's slightly below historic the historic average, but nothing to be alarmed about.

Home prices are still WAAAAAAY above historic averages. Even if they drop 20%, they'll still be way up.

The only people that will get hosed are speculators.

You didn't "lose" money if you lost "unrealized gains".

adam_arthur6• 4 years ago

Yup.

It was pretty much all avoidable if policymakers had been more responsible. But they weren’t.

Dropping rates to pull wealth from the future into the present finally hit the brick wall of inflation.

This whole scenario has made it clear we’ve been abusing monetary policy for what fiscal policy should have been used for

chickenpotpie• 4 years ago

Citation needed on homes losing 35% of their value. I've paid a lot of attention to predictions on home values and the only people that are predicting drops that big are /r/rebubble and low quality media outlets. I have yet to find a single economist that supports a price drop that large. The biggest I've seen an economist say is a 5% drop.

mensetmanusman2• 4 years ago

There is less stuff to buy, demand remained high due to stimulus, prices rise accordingly, huge amounts of boomer retirements line up to keep unemployment low, record high corporate profits, economy growing… this is like a boom and a bust at the same time.

US economy returned to growth last quarter, expanding 2.6%

Related Stories